Question - Management believes the tax position taken on the land sales has a greater than 50% chance of being upheld based on its technical merits, but the position taken on the interest has a less than 50% chance of being upheld. It is further believed that the following likelilhood percentages apply to the tax treatment of the land sales ($ In millions):
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Amount Qualifying for Installment Sales Treatment
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Percentage Likelihood of Tax Treatment Being Sustained
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$70
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20%
|
|
60
|
20%
|
|
50
|
20%
|
|
40
|
20%
|
|
30
|
20%
|
Required -
1. What portion of the tax benefit of tax-free interest will Tru recognize on Its 2018 tax return?
2. What portion of the tax benefit of tax-free interest will Tru recognize on its 2018 financial statements?
3.a. What portion of the tax on the $70 million income from the plots sold on an installment basis will Tru defer on its 2018 tax return?
3-b. What portion of the tax on the $70 million income from the plots sold on an installment basis will Tru defer in its 2018 financial statements?
4. Prepare the journal entry to record income taxes in 2018 assuming full recognition of the tax benefits in the financial statements of both differences between pretax accounting income and taxable income.
5. Prepare the journal entry to record income taxes in 2018 assuming the recognition of the tax benefits in the financial statements you Indicated in requirements 1-3.